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DeFi frenzy

Chef Nomi: “I f***ed up” – The rise, fall, and rise of SushiSwap

In late August, a fork of Uniswap — called SushiSwap — started making headlines in the crypto space for attracting over $1.3 billion in value locked (mostly from whales), in less than a week since its creation.

Background: Uniswap is one of the most popular Ethereum-based automated market makers (AMMs), a type of decentralized exchange (DEX) that relies on mathematical formulas to determine the prices of assets. Arbitrage trading between DEXes and traditional centralized exchanges help correct prices of assets in AMMs. Such approach solves a liquidity problem of early decentralized exchanges such as EtherDelta or 0x, which tried to use classical order book mechanism to match sellers and buyers in order to set prices of tokens.

Unlike VC-backed Uniswap, however, SushiSwap promised to have a fair distribution of governance tokens. Meanwhile, the price of its native token SUSHI experienced parabolic growth, contributing to overall decentralized finance (DeFi) craze and the rise of ETH to nearly $500 mark.

September, however, kicked off with headlines that Chef Nomi — the pseudonymous founder of SushiSwap protocol — controlled an admin wallet with a large amount of SUSHI tokens, intended to be used for further development of the project. Unlike in many other projects, though, the developers fund of SushiSwap was not locked by a governance vote or time lock, meaning that all tokens could have been dumped on a market at any time. Since SushiSwap quickly became the hottest DeFi project, such news triggered a serious correction in the overbought market, dragging all prices down.

Less than a week later, the Chef indeed sold his SUSHI tokens for ~$14 million worth of ETH. The move came amid a mass migration of tokens from Uniswap to SushiSwap smart contract. Several holders threatened legal action against Chef Nomi, while he claimed that he didn’t exit-scam, but rather wanted to focus on migration instead of price. Regardless, the move has been considered by many as one of the reasons Ethereum plummeted to sub-$320 levels on that day.

However, after a serious community backlash, Chef Nomi transferred all the project keys to Sam Bankman-Fried (SBF), the CEO of derivatives exchange FTX and co-founder of decentralized exchange Serum. Even further, Nomi ended up returning the totality of the funds back to the SushiSwap dev treasury, sending the price of the token from $2.26 to $2.70, a 16% appreciation. At press time, ETH is trading at $370.

Network congestion

Ethereum’s gas prices slowly returning to sub-100 gwei levels

Meanwhile, the decentralized finance craze pushed Ethereum fees to record highs. On September 2 the average transaction fee skyrocketed to over $15. While the first phase of Eth 2.0 is still at least a few months away, developers resumed talks about the gas rule change in attempt to ease network congestion.

Fortunately, the following market crash provided a temporary relief, because average gas price plummeted below 100 Gwei, or less than $1 for a simple ETH transaction. At the same time, major DeFi tokens experienced a serious price correction, shedding half of their fiat value during a pull-back. The total value locked in DeFi protocols has also fallen from all time high of $9.6 billion on September 2 to $6.8 billion a week later.

In other news

  • After suffering from the third 51% attack in a month, the team behind the Ethereum Classic blockchain threatened legal action against Slovenia-based cloud mining marketplace NiceHash, which was used to rent the necessary hash power for the attacks. ETC Labs admitted working with authorities in relevant jurisdictions. Critics argue that such a move goes against the principles of decentralized cryptocurrencies with a proof-of-work consensus algorithm, where miners simply follow the longest chain.

  • Bithumb, South Korea’s largest cryptocurrency exchange, has been raided by police over alleged fraud connected to a $25 million sale of its native token BXA, which was sold to investors, but hasn’t been listed on Bithumb. The action comes just a week after police seized the country’s third-largest crypto exchange Coinbit over allegations of faking its trading volume.

  • Just Eat, a major food delivery service in France, started accepting Bitcoin as a payment via US-based payment provider Bitpay. Another bullish news came from Pornhub, which started accepting Bitcoin and Litecoin.

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